Prudential Plc will transfer 94 percent of its liabilities in Taiwan to China Life Insurance Company. This includes Prudential's legacy interest rate guaranteed products.
The deal entered with China Life covers the assets and liabilities of Prudential's agency distribution business and its agency force, which were transferred for a nominal NT$1. In addition, Prudential will invest £45m to purchase a 9.95 percent stake in China Life through a share placement.
As an EU domiciled company, Prudential adheres to the European Union Insurance Group Directive or IGD, under which it is required to carry significant economic capital reserves against this back book.
Upon completion of this transfer, there will be a net increase in Prudential's IGD surplus of approximately £800M, further strengthening its already robust IGD position. The Group's embedded value as reported under the European Embedded Value or EEV principles will increase by £90M after restructuring costs. The transfer will have an estimated one-off IFRS negative impact of £595m including restructuring costs to be reported on completion. There is no impact on Prudential's dividend paying capacity.
The transferred business had International Financial Reporting Standards or IFRS gross assets of £4.5B as of 31 December 2008, an IFRS operating profit pre-tax based on longer-term investment returns of £55M and an EEV operating profit pre-tax of £90M. The losses before tax on the IFRS and EEV bases were £10M and £240M respectively.
This deal will enable Prudential to focus on creating greater value in its wholly-owned and fast-growing life insurance operation, PCA Life Assurance Company Ltd, specialising in bank distribution through partnerships with Standard Chartered Bank and E-Sun and its successful asset management operation (PCA Securities Investment Trust Company Ltd). The direct investment in China Life will also be a source of incremental value. The transfer is subject to regulatory approval.
China Life Insurance Company, Ltd of Taiwan is currently ranked fourth in the country and is one of Taiwan's fastest-growing insurers offering a range of products through agency, broker and bancassurance channels.
Mark Tucker, Group Chief Executive of Prudential said: "This agreement is enormously value-enhancing for Prudential Group on several levels. We release significant capital to further strengthen our already very robust capital position; we improve our embedded value; and the transfer enables us to focus on both our rapidly expanding bank distribution through our successful partnerships with Standard Chartered Bank and E-Sun Bank and our asset management business. We also retain a significant interest in agency distribution in Taiwan through our shareholding in one of the largest and most reputable life companies in Taiwan."
He added, "We see this as clear-sighted and active management of the Group to optimise shareholder value. We continue to see Asia as the primary engine of growth for Prudential and our commitment to our unique agency distribution model and to the region is absolute."
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